Sunday, January 22, 2012

Soak the Poor

Soak the PoorMises Daily: Friday, January 20, 2012 by Frank Chodorov

To be sure, the original Populists, and the aping Democrats and Republicans, to say nothing of the conscious Socialists, little thought that their income-tax gadget would ever be used to "soak the poor." It was an instrument, they thought, that could lend itself to no other purpose than to expropriate the rich in favor of the poor. How the poor would benefit from the expropriation, they did not explain; their intense hatred of the rich conveniently filled this vacuum in their argument. Their passion blinded them to the fact that this "soak the rich" law would enable the government to filch the pay envelope.

The class-war doctrine is most vicious not in that it sets man against man, producer against producer, but in that it diverts the attention of the contestants from their common enemy, the State. Men live by production, but the State lives by appropriation. While the haves and the have-nots struggle over the division of existing wealth, it is the business of the State to improve itself at the expense of both; it picks up the marbles while the boys are fighting. That has been the story of men in organized society since the beginning. That this lesson of history should have escaped the reformers of the 19th century, when the habit of freedom was still strong in America, can be easily understood; what is not easily explained is the acceptance of the doctrine of benevolent government in our day, when all the evidence to the contrary is before our eyes.

However, one good "reason" followed another for making better use of the 16th Amendment. After 1913, the government, which for over a century had managed to get along without income taxation, felt a continuing need for more funds.[1] The income-tax rates kept climbing, and the exemptions kept declining; the mesh of the dragnet was made finer and finer so that more fish could be caught. At first it was the incomes of corporations, then of rich citizens, then of well-provided widows and opulent workers, and finally the wealth of housemaids and the tips of waitresses.

This is all in line with the ability-to-pay doctrine. The poor, simply because there are more of them, have more ability to pay than the rich. The national pay envelope contains more money than the combined treasuries of all the corporations of the country. The government could not for long overlook this rich mine. Political considerations however, made the tapping of the pay envelope difficult. The wage earners have votes, many votes, and in order not to alienate these votes, it was necessary to devise some means for making the taxation of their incomes palatable. They had to be lulled into acceptance of "soak the poor."

The drug that was concocted for this purpose was "social security." The worker was told that he was not paying an income tax when his pay envelope was opened and robbed; he was simply making a "contribution" to "insurance" against the inevitable disabilities of old age. He would get it all back, when he could no longer work, and with a profit.

This is sheer fraud, as can be readily seen when comparison between social security and legitimate insurance is made. When you pay a premium on an insurance policy, the company keeps part of it in reserve. The amount thus set aside is based on actuarial experience; the company knows from long study how much money it must keep on hand to meet probable claims. Most of your premium is invested in productive business, and out of the earnings from such investment the company pays its running expenses and builds up a surplus to meet unexpected strains; or it pays the policy holders a share of this extra income, in dividends. Without going into the intricate details of the insurance business, the guiding principle is that benefits are paid out of the reserve or the company's earnings from investments.

Is that what happens to your "contribution" to social security? Not a bit of it.